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FINAT, the European association for the self-adhesive label industry, reports that the label industry is being hampered by supply chain issues – despite continued, growing demand for label materials. According to FINAT, “in the second half of 2009 and first quarter of 2010, the industry has seen strong signs of demand recovery. As a result, the market decline for the year as a whole in 2009 and was restricted to 5.3 percent in comparison to a double-digit decline in the first half of that year. In the first quarter of 2010, this upward trend continued and demand for label materials grew by 12.5 percent compared to the same quarter a year ago, when the global crisis reached its lowest point.

“However, growing business optimism has been tempered by recent developments in the raw materials market. While paper manufacturers have been adjusting their capacity temporarily or even permanently throughout 2009, the recovery in demand has pushed pulp prices to all-time highs. This trend was aggravated by a temporary wipe out of pulp production capacity due to the Chilean earthquake, while strikes in Finland and Sweden also had their effect on raw materials delivery. As a result, pulp prices reached plus 40 percent above the levels recorded in early 2009, and have approached the record levels of 1995. During Q1-2010, major paper suppliers have consequently announced price increases ranging from 8-10 percent.

“Also, in the filmic materials segment, refineries and feedstock suppliers have adjusted capacity in the course of the demand crisis and price increases in the range of 5-10 percent for PE and PP have recently been announced. Simultaneously, recent reports from other segments in the supply chain are indicating similar capacity constraints for specialty chemicals used by ink and adhesives manufacturers to produce their consumables. To complete this picture, transport and energy costs are under pressure too.”

Jules Lejeune, FINAT’s managing director, comments: “The sector appears to be facing a classic example of bottoming out of the economic cycle. On the one hand, customers start filling up their empty warehouses in anticipation of returning consumer confidence. On the other hand, the crisis has triggered raw materials suppliers to implement or accelerate capacity adjustments and they have great difficulty meeting the upswing. The net effect is that there is great pressure on the label converters to cope with the tight market conditions at present. Business prospects for the sector therefore remain fragile.”